Nordea Eiendomskreditt Covered Bonds Q3 2018 Debt investor presentation
Table of contents 1. In brief 3 2. Cover pool key characteristics 6 3. Asset quality 10 4. Covered bond framework 14 5. Macro 16 6. Further information 20 2
1. In brief 3
Nordea covered bond operations Q3 2018 Four aligned covered bond issuers with complementary roles Nordea Nordea Nordea Nordea Mortgage Eiendomskreditt Hypotek Kredit Bank Legislation Norwegian Swedish Danish/SDRO Finnish Cover pool assets Norwegian residential mortgages Swedish residential mortgages primarily Danish residential & commercial Finnish residential mortgages primarily mortgages Cover pool size EUR 11.2bn (eq.) EUR 51.0bn (eq.) Balance principle EUR 19.9bn Covered bonds outstanding EUR 9.2bn (eq.) EUR 31.5bn (eq.) EUR 56.0bn (eq.) EUR 16.7bn OC 21% 62% CC1/CC2 21%/11% 20% Issuance currencies NOK, GBP, USD, CHF SEK DKK, EUR EUR Rating (Moody’s / S&P) Aaa / - Aaa / AAA Aaa / AAA Aaa / - • Covered bonds are an integral part of Nordea’s long term funding operations • Issuance in Scandinavian and international currencies • ECBC Covered Bond Label on all Nordea covered bond issuance 4
Nordea Eiendomskreditt – overview Q3 2018 • A 100% owned subsidiary of Nordea Bank Abp (as of 1 October 2018) • The purpose of the Issuer is to acquire and provide residential mortgage loans and finance its activities mainly through issuance of covered bonds • Loans in Nordea Eiendomskreditt (NE) are originated by Nordea Bank Abp, Norwegian branch and subsequently transferred to NE • Collateral must be in the form of mortgages in residential real estate or in shares in housing cooperatives • At the time of transfer, the loans are not in default, i.e. payments of installments and interest are not overdue at the time of transfer • Approx. 14% market share of outstanding covered issuance in Norwegian market • Cost- effective loan origination and service through Nordea Bank’s nationwide Norwegian branch network and internet • Covered bonds rated Aaa by Moody’s 5
2. Cover pool characteristics 6
Cover pool key characteristics Q3 2018 Cover pool summary Pool notional NOK 105.8bn Outstanding Covered Bonds NOK 87.1bn Cover pool content Mortgage loans secured by Norwegian residential collateral Geographic distribution Throughout Norway with concentration to urban areas Asset distribution 100% residential Weighted average LTV 47.9% (indexed, calculated per property) Average loan size NOK 1.5m Over Collateralisation (OC) 21.5%, (2% legal requirement) Rate type Floating 97.9%, Fixed 2.1% Amortisation Bullet/ interest only 33.0%, Amortizing 67.0% Pool type Dynamic Loans originated by Nordea Bank Abp (as of 1 October 2018), Norway Branch 7
Cover pool key characteristics (2) Q3 2018 Weighted Average LTV – Indexed Cover pool balance by loan category 100% 90% 80% Regulatory limit 75% Summer houses 3% 70% Regulatory limit 60% Tenant owner units 29% 60% 48,2% 47,5% 50% 44,5% 40% Single family houses 68% 30% 20% 10% 0% Single-family houses Tenant owner units Summer houses 8
Cover pool – geographic distribution Q3 2018 Fylke Loan balance Region Akershus 17,17% East 1,57% Aust-Agder South Buskerud 4,23% East Finnmark 0,46% North 1,94% Hedmark East Hordland 10,96% West Møre og Romsdal 7,58% West 2,01% Nordland North Oppland 3,75% East Oslo 23,19% East 4,40% Rogaland West Sogn og Fjordane 1,17% West Svalbard 0,00% North 2,98% Telemark East Troms 1,18% North 2,24% Trøndelag Mid Vest-Agder 4,26% South Vestfold 3,54% East 7,39% Østfold East 9
3. Asset quality 10
Loan to Value (LTV) Each loan is reported in the highest bucket Q3 2018 Weighted Average LTV – Unindexed 48.2% LTV buckets Nominal (NOKm) % Residential Loans 31,43% 33 356 >0 - <=40 % 17,89% 18 930 >40 - <=50 % 22 704 21,46% >50 - <=60 % 19 301 18,24% >60 - <=70 % 10,99% 11 628 >70 - <=80 % 100% Total 105 819 Weighted Average LTV - Indexed 47.9% LTV buckets Nominal (NOKm) % Residential Loans >0 - <=40 % 32,07% 33 931 18,12% >40 - <=50 % 19 170 >50 - <=60 % 21,55% 22 807 >60 - <=70 % 17,90% 18 941 >70 - <=80 % 10 970 10,37% Total 100% 105 819 11
Loan structure Q3 2018 Repayment Rate type Repayment 100% 100% 90% 90% 80% 80% 70% 70% 62,1% 62,6% 65,0% 64,8% 67,0% 67,0% 67,7% 67,2% 60% 60% 97,4% 97,7% 98,3% 98,3% 98,5% 98,4% 98,3% 97,9% 50% Amortising 50% Floating rate 40% 40% * Bullet / interest only Fixed rate 30% 30% 20% 20% 37,9% 37,4% 35,0% 35,2% 32,3% 32,8% 33,0% 33,0% 10% 10% 2,6% 2,3% 1,7% 1,7% 1,5% 1,6% 1,7% 2,1% 0% 0% 16Q4 17Q1 17Q2 17Q3 17Q4 18Q1 18Q2 18Q3 16Q4 17Q1 17Q2 17Q3 17Q4 18Q1 18Q2 18Q3 12 * Including Flex loans
Underwriting criteria Q3 2018 Affordability • Customers ability to service its commitment out of its cash flow/income is critical • Repayment ability of borrowers is calculated using stressed scenarios. Customers must manage 5 percentage points increase on interest rate on all debt • Scoring of retail customers Payment history • Credit bureau check is always conducted. Potential external payment remarks are revealed Collateral • Information from Norwegian official property register in order to secure correct real estate ownership and priority • Nordea accepts four sources of real estate valuations: a) Written statement from external authorized valuer b) Last sales price (within 6 months) Use of external evaluating system “Eiendomsverdi” (used by most banks and real estate agents in Norway) c) d) Written statement from (external) real estate agent 13
5. Covered Bond framework 14
Norwegian covered bond framework Q3 2018 • Legal framework • Norwegian Financial Institutions Act (2007) • Registration and independent inspector • A mortgage credit institution shall for each cover pool establish a register of loans, interest rate contracts and foreign exchange contracts, substitute assets and covered bonds • The institution shall put forward an independent inspector who shall be appointed by the FSA “Finanstilsynet” • Limit on LTV ratio – based on the current value • 75% for housing loans (residential property) • 60% for commercial loans (commercial property) • Matching cover requirements 2 • The value of the cover pool shall at all times exceed the value of covered bonds with a preferential claim over the pool and a ccount shall be taken of the mortgage credit institution’s derivative contracts • Liquidity requirements • The mortgage credit institution shall ensure that the payment flows from the cover pool enable the mortgage credit institution to honour its payment obligations towards holders of covered bonds and counterparties to derivative contracts at any and all times 15
6. Macro 16
Robust Nordic economies GDP development Unemployment rate Comments GDP forecast, % • The Nordics are enjoying a solid economic development. Country 2016 2017 2018E 2019E 2020E While the synchronised global recovery supports exports, the Denmark 2.0 2.3 1.0 1.8 1.7 accommodative monetary polices support domestic demand • Short-term survey indicators have declined somewhat from Finland 2.5 2.8 3.0 2.0 1.5 elevated levels, but nevertheless suggest that growth will be Norway 1.1 2.0 2.4 2.7 2.5 held up fairly well in the near-term Sweden 3.0 2.5 2.8 2.1 1.8 Source: Nordea Markets Economic Outlook September 2018 and Macrobond 17
Household debt remains high, but so is private and public savings Household debt Household savings Public balance/debt, % of GDP, 2018E Comments • In all countries, apart from Denmark, household debt continues to rise somewhat faster than income. Meanwhile, households’ savings rates remain at high levels, apart from Finland where savings have declined somewhat in recent years • The Nordic public finances are robust due to the overall economic recovery and relatively strict fiscal policies. Norway is in a class of its own due to oil revenues Source: Nordea Markets, European Commission, Winter 2018 forecast 18
House price development in the Nordics Household’s credit growth House prices Comments • Recent quarters have shown stabilisation in the Swedish and Norwegian housing markets, while prices continue to rise in Denmark and to some extent also in Finland. • In Sweden house prices declined during H2 2017 but the trend has levelled out in 2018, despite increased regulations which was expected to put downward pressure on house prices. The price correction is probably caused by the marked rise in new buildings seen in recent years. Going forward, largely stagnant prices are expected as mortgage rates are expected to stay low • In Norway, primarily in Oslo, house prices turned down during 2017. The downturn was primarily driven by stricter lending requirements introduced 1 January 2017. However, prices have levelled out, and even increased somewhat in Oslo, in recent months. Largely unchanged prices are forecast ahead. 19
7. Further information 20
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